Includes purchase accounting adjustment of $1.6 million, $0.6 million of amortization of intangibles from acquisitions and acquisition related expenses of $0.5 million aggregating to $2.7 million, or 180 basis points

Earnings per share of $0.75, up 13.6%, from $0.66

Non-GAAP Financial Measures*:

Organic sales growth of 1.8%

Above market growth in two segments offset by continued softness in Technical Nonwovens power generation markets

Adjusted gross margin of 25.6%, up 150 basis points

Adjusted operating margin of 13.1%, up 180 basis points

Adjusted earnings per share of $0.86, up 45.8% from $0.59 per share

Adjusted EBITDA margin of 16.8%, up 210 basis points

*Reconciliations of the Non-GAAP financial measures to Lydall’s GAAP financial results are included at the end of this release. See also “Use of Non-GAAP Financial Measures” below.

Dale Barnhart, President and Chief Executive Officer, stated, “I am very pleased with our results as we reported record revenue of $155.7 million, earnings per share of $0.75 and record adjusted earnings per share of $0.86 for the third quarter.

"Lydall delivered very strong organic revenue growth in our Thermal/Acoustical Metals and Performance Materials segments of 11.3% and 8.9%, respectively, which was offset by a decline in Technical Nonwovens of 10.6%, as the softness we’ve experienced all year in the power generation market persisted. The performance and integration of our most recent acquisition of Texel, which was acquired on July 7, 2016, is on-track. Overall, Lydall was able to achieve excellent gross margin and operating margin expansion as we experienced favorable mix and cost absorption on the incremental sales.”

Summary Results

Net sales in the third quarter of 2016 increased 18.7% to $155.7 million, compared to $131.2 million in the third quarter of 2015. Net sales increased in the Thermal/Acoustical Metals (“T/A Metals”), Performance Materials and Thermal/Acoustical Fibers (“T/A Fibers”) segments by 11.8%, 9.0% and 2.1%, respectively. Growth in Performance Materials segment net sales was primarily due to improved demand and share gains of filtration products of 8.7%, particularly in North America and Europe, coupled with additional sales from new product development launches in Europe. The T/A Metals segment was positively impacted by increased parts sales of 12.6% due to increased demand and new platform launches at the Company’s North American and Chinese operations. The Technical Nonwovens segment reported sales growth of 53.1% as a result of Texel sales of $23.2 million since the date of acquisition, offset by lower power generation industrial filtration product sales.

Gross margin increased 40 basis points to 24.5% in the third quarter of 2016, principally led by the Performance Materials and T/A Metals segments. In the Performance Materials segment, change in product sales mix and improved absorption of overhead costs from increased production drove the gross margin improvement. In the T/A Metals segment, increased sales volume and favorable mix of product sales contributed to gross margin expansion, partially offset by continuing operating inefficiencies related to new platform launches. In the Technical Nonwovens segment, the inclusion of Texel and the $1.6 million adjustment to cost of sales for inventory step-up caused a reduction to consolidated gross margin. However, the legacy Technical Nonwovens business experienced improved gross margin on lower net sales as a result of lower raw material costs and favorable product mix. Adjusted gross margin in the third quarter of 2016, which excludes $1.6 million of cost of sales related to Texel inventory step-up, was 25.6%, or 150 basis points higher than the third quarter of 2015.

Operating margin increased 40 basis points to 11.7% in the third quarter of 2016 primarily led by the Performance Materials and T/A Metals segments. All of the gross margin improvement was realized in operating margin as selling, product development and administrative expenses as a percentage of net sales were flat. Adjusted operating margin, which excludes the $1.6 million inventory step-up and $0.5 million of acquisition related expenses, increased 180 basis points in the third quarter of 2016 to 13.1% compared to 11.3% in the third quarter of 2015, principally led by the Technical Nonwovens segment, and to a lesser extent, the Performance Materials and T/A Metals segments.

The Company's effective tax rate in the third quarter of 2016 was 29.7% compared to 24.4% in the third quarter of 2015. The effective tax rate in the third quarter of 2016 was favorably impacted by a greater amount of pretax earnings from jurisdictions with lower tax rates than the U.S., partially offset by a discrete tax expense of $0.5 million for nondeductible transaction related expenses. The effective tax rate in third quarter of 2015 was favorably impacted by discrete one-time tax benefits of approximately $1.2 million from research and development tax credits and the release of reserves from previously uncertain tax positions.

Net income in the third quarter of 2016 was $12.8 million, or $0.75 per diluted share, compared to $11.2 million, or $0.66 per diluted share in the third quarter of 2015. Adjusted earnings per share were $0.86 in the third quarter of 2016 compared to $0.59 per share in the third quarter of 2015.

A reconciliation of the Non-GAAP financial measures to Lydall’s GAAP financial results is included at the end of this release.

Liquidity

The Company generated cash from operating activities of $47.4 million in the nine months ended September 30, 2016 compared to $14.9 million in the first nine months of 2015, primarily from improvements in working capital management, improved operating performance and timing of payments. The cash balance was $77.1 million as of September 30, 2016, with $18.2 million used on July 7, 2016 to fund the Texel acquisition, compared to cash of $75.9 million at December 31, 2015.

The Company’s leverage ratio was 1.2 to 1.0 at September 30, 2016, which was below the maximum allowed ratio of debt to EBITDA of 3.0 to 1.0 in accordance with the Company's Amended Credit Facility. The Company’s cash on hand and credit facility availability of $76.2 million provide additional capacity to support organic growth programs, fund capital investments and continue pursuits of attractive acquisitions that will drive profitable growth.

Outlook

Mr. Barnhart concluded, “Looking to the balance of 2016, we expect demand in our automotive segments to remain steady as we continue to benefit from new product launches, primarily in our T/A Metals segment. In the Performance Materials segment, we expect improved demand to continue in our filtration markets, but to be tempered sequentially by planned fourth quarter shutdowns at certain customers. In the Technical Nonwovens segment, we expect softness in the power generation industrial filtration markets to persist for the remainder of the fourth quarter. With respect to Texel, we anticipate that we will experience a softer fourth quarter sequentially given the normal seasonality for our geosynthetics products.”

Conference Call

Lydall will host a conference call on November 2, 2016, at 10:00 a.m. Eastern Time to discuss results for its third quarter ended September 30, 2016 as well as general matters related to its businesses and markets. The call may be accessed at (888) 338-7142, from within the U.S., or (412) 902-4181, internationally. In addition, the audio of the call will be webcast live and will be available for replay on the Company's website at www.lydall.com in the Investor Relations' Section. A recording of the call will be available from 12:00 p.m. Eastern Time on November 2, 2016 through 11:59 p.m. Eastern Time, November 9, 2016 at (877) 344-7529, from within the U.S., or (412) 317-0088, internationally, pass code 10094372. Additional information, including a presentation outlining key financial data supporting the conference call, can be found on the Company’s website www.lydall.com under the Investors Relations’ Section.

Use of Non-GAAP Financial Measures

In addition to the financial measures prepared in accordance with generally accepted accounting principles (“GAAP”), the Company uses certain non-GAAP financial measures, including organic sales, adjusted gross profit, adjusted gross margin, adjusted operating income, adjusted operating margin, adjusted earnings per share, EBITDA and adjusted EBITDA. The attached financial tables address the non-GAAP measures used in this press release and reconcile non-GAAP measures to the most directly comparable GAAP measures. The Company believes that the use of non-GAAP measures helps investors to gain a better understanding of our core operating results and future prospects, consistent with how management measures and forecasts the Company's performance, especially when comparing such results to previous periods or forecasts. Non-GAAP measures should be considered in addition to, and not as a replacement for or superior to, the corresponding GAAP measures, and may not be comparable to similarly titled measures reported by other companies.

Cautionary Note Concerning Forward-Looking Statements

This press release contains “forward-looking statements” within the Private Securities Litigation Reform Act of 1995. Any statements contained in this press release that are not statements of historical fact may be deemed to be forward-looking statements. All such forward-looking statements are intended to provide management’s current expectations for the future operating and financial performance of the Company based on current expectations and assumptions relating to the Company’s business, the economy and other future conditions. Forward-looking statements generally can be identified through the use of words such as “believes,” “anticipates,” “may,” “should,” “will,” “plans,” “projects,” “expects,” “expectations,” “estimates,” “forecasts,” “predicts,” “targets,” “prospects,” “strategy,” “signs,” and other words of similar meaning in connection with the discussion of future operating or financial performance. Because forward-looking statements relate to the future, they are subject to inherent risks, uncertainties and changes in circumstances that are difficult to predict. Such risks and uncertainties which include, among others, worldwide economic cycles that affect the markets that the Company’s businesses serve which could have an effect on demand for the Company’s products and impact the Company’s profitability, challenges encountered by the Company in the integration of the Texel acquisition, disruptions in the global credit and financial markets, including diminished liquidity and credit availability, foreign currency volatility, swings in consumer confidence and spending, unstable economic growth, raw material pricing and supply issues, fluctuations in unemployment rates, retention of key employees, increases in fuel prices, and outcomes of legal proceedings, claims and investigations, including violations of German anti-trust laws by employees in our German operation that could have a negative impact on the Company’s results of operations and financial condition. Accordingly, the Company’s actual results may differ materially from those contemplated by these forward-looking statements. Investors, therefore, are cautioned against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Additional information regarding the factors that may cause actual results to differ materially from these forward-looking statements is available in Lydall’s filings with the Securities and Exchange Commission, including the risks and uncertainties identified in Part II, Item 1A - Risk Factors of Lydall’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 and Part I, Item 1A - Risk Factors of Lydall’s Annual Report on Form 10-K for the year ended December 31, 2015.

These forward-looking statements speak only as of the date of this press release, and Lydall does not assume any obligation to update or revise any forward-looking statement made in this press release or that may from time to time be made by or on behalf of the Company.

Lydall, Inc. is a New York Stock Exchange listed company, headquartered in Manchester, Connecticut with global manufacturing operations producing specialty engineered products for the thermal/acoustical and filtration/separation markets. For more information, visit http://www.lydall.com. Lydall® is a registered trademark of Lydall, Inc. in the U.S. and other countries.

Summary of Operations

In thousands except per share data

(Unaudited)

Quarter Ended

Nine Months Ended

September 30,

September 30,

2016

2015

2016

2015

Net sales

$

155,725

$

131,240

$

422,660

$

393,107

Cost of sales

117,532

99,549

316,100

299,827

Gross profit

38,193

31,691

106,560

93,280

Selling, product development and administrative expenses

19,896

16,850

59,062

51,332

Operating income

18,297

14,841

47,498

41,948

Gain on sale of business

—

—

—

(18,647

)

Interest expense

389

187

643

595

Other income, net

(218

)

(150

)

(884

)

(619

)

Income before income taxes

18,126

14,804

47,739

60,619

Income tax expense

5,392

3,618

15,023

19,679

Income from equity method investment

$

(51

)

$

—

$

(51

)

$

—

Net income

$

12,785

$

11,186

$

32,767

$

40,940

Earnings per share:

Basic

$

0.76

$

0.67

$

1.94

$

2.45

Diluted

$

0.75

$

0.66

$

1.92

$

2.40

Weighted average number of common shares outstanding

16,888

16,715

16,859

16,744

Weighted average number of common shares and equivalents outstanding

17,138

17,028

17,084

17,085

Summary of Segment Information

and Other Products and Services

In thousands

(Unaudited)

Quarter Ended

Nine Months Ended

September 30,

September 30,

2016

2015

2016

2015

Net Sales

Performance Materials Segment

$

28,831

$

26,442

$

85,180

$

77,532

Technical Nonwovens Segment

52,284

34,155

111,331

104,257

Thermal/Acoustical Metals Segment

44,637

39,941

131,879

119,488

Thermal/Acoustical Fibers Segment

36,429

35,681

112,458

102,268

Other Products and Services:

Life Sciences Vital Fluids

—

—

—

1,671

Eliminations and Others

(6,456

)

(4,979

)

(18,188

)

(12,109

)

Consolidated Net Sales

$

155,725

$

131,240

$

422,660

$

393,107

Operating Income

Performance Materials Segment

$

3,283

$

2,500

$

10,102

$

6,071

Technical Nonwovens Segment

5,662

3,352

12,807

11,058

Thermal/Acoustical Metals Segment

5,451

3,889

13,090

12,323

Thermal/Acoustical Fibers Segment

10,026

10,082

30,980

27,719

Other Products and Services:

Life Sciences Vital Fluids

—

—

—

118

Corporate Office Expenses

(6,125

)

(4,982

)

(19,481

)

(15,341

)

Consolidated Operating Income

$

18,297

$

14,841

$

47,498

$

41,948

Financial Position

In thousands except ratio data

(Unaudited)

September 30, 2016

December 31, 2015

Cash and cash equivalents

$

77,117

$

75,909

Working capital

$

179,199

$

158,303

Total debt

$

95,167

$

20,479

Stockholders' equity

$

278,852

$

245,225

Total capitalization

$

374,019

$

265,704

Total debt to total capitalization

25.4

%

7.7

%

Cash Flows

In thousands

Quarter Ended

Nine Months Ended

(Unaudited)

September 30,

September 30,

2016

2015

2016

2015

Net cash provided by operating activities

$

14,015

$

10,402

$

47,422

$

14,897

Net cash (used for) provided by investing activities

$

(104,582

)

$

(3,782

)

$

(120,131

)

$

13,090

Net cash provided by (used for) financing activities

$

85,085

$

16

$

74,482

$

(7,176

)

Depreciation and amortization

$

5,430

$

4,295

$

14,064

$

12,968

Capital expenditures

$

(3,483

)

$

(3,782

)

$

(19,032

)

$

(15,460

)

Common Stock Data

Quarter Ended September 30,

2016

2015

High

$

53.30

$

30.71

Low

$

37.96

$

25.28

Close

$

51.13

$

28.49

During the third quarter of 2016, 6,386,400 shares of Lydall common stock (LDL) were traded on the New York Stock Exchange.

The following tables address the non-GAAP measures used in this press release and reconcile the non-GAAP measures to the most directly comparable GAAP measures:

Quarter Ended September 30,

Nine Months Ended September 30,

2016

2015

2016

2015

Net sales

$

155,725

$

131,240

$

422,660

$

393,107

Divested business

—

—

—

(1,671

)

Net sales, adjusted

$

155,725

$

131,240

$

422,660

$

391,436

Gross Profit, as reported

$

38,193

$

31,691

$

106,560

$

93,280

Inventory step-up purchase accounting adjustment

1,607

—

1,607

—

Divested business

—

—

—

(534

)

Gross Profit, adjusted

$

39,800

$

31,691

$

108,167

$

92,746

Gross Margin, as reported

24.5

%

24.1

%

25.2

%

23.7

%

Gross Margin, adjusted

25.6

%

24.1

%

25.6

%

23.7

%

Operating income, as reported

$

18,297

$

14,841

$

47,498

$

41,948

Inventory step-up purchase accounting adjustment

1,607

—

1,607

—

Acquisition related expenses

537

—

2,645

—

Divested business

—

—

—

(118

)

Operating income, adjusted

$

20,441

$

14,841

$

51,750

$

41,830

Operating margin, as reported

11.7

%

11.3

%

11.2

%

10.7

%

Operating margin, adjusted

13.1

%

11.3

%

12.2

%

10.7

%

Earnings per share, reported

$

0.75

$

0.66

$

1.92

$

2.40

Inventory step-up purchase accounting adjustment

$

0.09

$

—

$

0.09

$

—

Acquisition related expenses

$

0.03

$

—

$

0.15

$

—

Gain on sale of business

$

—

$

—

$

—

$

(1.09

)

Tax effect of above adjustments

$

(0.04

)

$

—

$

(0.08

)

$

0.39

Discrete tax adjustments

$

0.03

$

(0.07

)

$

0.03

$

(0.07

)

Earnings per share, adjusted

$

0.86

$

0.59

$

2.11

$

1.63

This press release reports adjusted results for the quarter and nine months ended September 30, 2016 and 2015, which excludes corporate acquisition related expenses, a purchase accounting adjustment related to inventory step-up in the Technical Nonwovens segment and the disposition of the Life Sciences Vital Fluids business in January 2015, all tax affected at jurisdictional tax rates, and discrete income tax adjustments described in this press release.

EBITDAIn thousands except ratio data(Unaudited)

For the Quarters Ended September 30,

2016

% of sales

2015

% of sales

Net income

$

12,785

$

11,186

Interest expense

389

187

Income tax expense

5,392

3,618

Depreciation and amortization

5,430

4,295

EBITDA

$

23,996

15.4

%

$

19,286

14.7

%

Inventory step-up purchase accounting adjustment

1,607

—

Acquisition related expenses

537

—

EBITDA, adjusted

$

26,140

16.8

%

$

19,286

14.7

%

For the Nine Months Ended September 30,

2016

% of sales

2015

% of sales (1)

Net income

$

32,767

$

40,940

Interest expense

643

595

Income tax expense

15,023

19,679

Depreciation and amortization

14,064

12,968

EBITDA

$

62,497

14.8

%

$

74,182

18.9

%

Inventory step-up purchase accounting adjustment

1,607

—

Acquisition related expenses

2,645

—

Gain on sale of business

—

(18,647

)

Divested business

—

(118

)

EBITDA, adjusted

$

66,749

15.8

%

$

55,417

14.2

%

(1) Net sales of $1.7 million from the disposed Life Sciences Vital Fluids business are excluded.

This press release reports earnings before interest, taxes, depreciation and amortization ("EBITDA") for the quarter and nine months ended September 30, 2016 and 2015 and adjusted EBITDA which excludes corporate acquisition related expenses, a purchase accounting adjustment related to inventory step-up in the Technical Nonwovens segment and the disposition of the Life Sciences Vital Fluids business.

Organic Sales(Unaudited)

Quarter Ended September 30, 2016

Performance Materials

Technical Nonwovens

Thermal/Acoustical Metals

Thermal/Acoustical Fibers

Consolidated

Sales growth, as reported

9.0

%

53.1

%

11.8

%

2.1

%

18.7

%

Acquisition of Texel business

—

%

(67.9

)%

—

%

—

%

(17.7

)%

Change in tooling sales

—

%

—

%

(0.6

)%

(2.0

)%

(0.3

)%

Foreign currency translation

(0.1

)%

4.2

%

0.1

%

—

%

1.1

%

Organic sales growth

8.9

%

(10.6

)%

11.3

%

0.1

%

1.8

%

Nine Months Ended September 30, 2016

Performance Materials

Technical Nonwovens

Thermal/Acoustical Metals

Thermal/Acoustical Fibers

Other Products and Services

Consolidated

Sales growth, as reported

9.9

%

6.8

%

10.4

%

10.0

%

(100.0

)%

7.5

%

Acquisition of Texel business

—

%

(22.2

)%

—

%

—

%

—

%

(5.9

)%

Change in tooling sales

—

%

—

%

(1.3

)%

(3.3

)%

—

%

(1.0

)%

Foreign currency translation

(0.2

)%

2.6

%

0.1

%

—

%

—

%

0.7

%

Disposition of Life Sciences Vital Fluids business

—

%

—

%

—

%

—

%

100.0

%

0.4

%

Organic sales growth

9.7

%

(12.8

)%

9.2

%

6.7

%

—

%

1.7

%

This press release provides information regarding organic sales change, defined as net sales change excluding (1) sales from acquired and sold businesses (2) the impact of foreign currency translation and (3) tooling sales. Management believes that the presentation of organic sales change is useful to investors because it enables them to assess, on a consistent basis, sales trends related to the Company selling products to customers, without the impact of foreign currency rate changes that are not under management's control and do not reflect the performance of the Company and management. Tooling sales are excluded because tooling revenue is not generated from selling the Company's products to customers, but rather is reimbursement from our customers for the design and production of tools used by the Company in our manufacturing processes. Tooling sales can be sporadic and may mask underlying business conditions and obscure business trends.

TERMS AND CONDITIONS OF USE

The investor relations site ("Site") with which this document is associated is maintained by S&P Global Market Intelligence ("S&P") on behalf of the organization featured on the Site (S&P's "Client"). These Terms and Conditions of Use ("Terms of Use") set forth the terms on which you may use the Site, and the information and materials contained therein (the "Contents"). By using the Site, you agree to these Terms of Use. If you do not agree to these Terms of Use, you are not authorized to use the Site or Contents in any manner, and you should immediately discontinue any use of the Site or the Contents.

S&P and/or its Client shall have the right at any time to modify or discontinue any aspect of the Site or any part of the Contents. S&P may also modify these Terms of Use without notice. You agree to monitor these Terms of Use, and to cease all access or use of the Site if you no longer agree to abide by the Terms of Use. Your continued use of the Site shall constitute acceptance of such modification.

S&P and the Client grant to you a limited, personal license to access the Site and to access and download the Contents, but only for your own personal, family and household use. You may not use, reproduce, distribute or display any portion of the Site for any other purpose, including without limit any commercial purpose. You may use the Site and the Contents for lawful purposes only. S&P and Client reserve all rights not expressly granted, including the right to terminate your use of the Site without notice.

The Site contains copyrighted material, trademarks and service marks, and other proprietary information, including but not limited to text, software, and graphics, which materials are owned by S&P and/or its Client. S&P and Client reserve all rights in the Contents. You agree not to reproduce, distribute, sell, broadcast, publish, retransmit, disseminate, circulate or commercially exploit the Site or the Contents without the express written consent of S&P and the Client.

You agree to access the Contents and the Site manually, by request, and not automatically, through the use of a program, or other means. You agree not to take any action, alone or with others, that would interfere with the operation of the Site, to alter the Site in any way, or to impede others' access to and freedom to enjoy and use the Site as made available by S&P and S&P’s Client.

THE SITE AND THE CONTENTS ARE PROVIDED ON AN "AS IS" BASIS. S&P, ITS CLIENT, AND ANY OTHER PROVIDERS OF THE INFORMATION EXPRESSLY DISCLAIM ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF ACCURACY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT.

NEITHER, S&P, THE CLIENT NOR EITHER OF THEIR AFFILIATES, SHAREHOLDERS, OFFICERS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL BE LIABLE FOR ANY INDIRECT, INCIDENTAL, EXEMPLARY , PUNITIVE SPECIAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR RELATING TO THE SITE, THE USE OF OR INABILITY TO USE THE SITE, OR THE CONTENTS, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN PARTICULAR, S&P WILL NOT BE LIABLE FOR ANY LOSS OR DAMAGE CAUSED BY YOUR RELIANCE ON INFORMATION OBTAINED THROUGH THE SITE.

It is your responsibility to evaluate the accuracy, completeness or usefulness of any of the Contents available on the Site. Please seek the advice of professionals regarding the evaluation of any of the information on the Site.

The Site does not represent an offer or solicitation with respect to the purchase or sale of any security.

These Terms of Use are the entire agreement between the parties with respect to its subject matter, and it can be amended only via written agreement by S&P. These terms and conditions shall be governed by the law of New York, without regard to principals of conflicts or choice of laws.